Big Issue #3 – Investing in our Infrastructure

As a very positive sign, the President-elect has emphasized the need to reinvest in our infrastructure which is in need of repair. This is consistent with the plans that his opponent had envisioned and with policies that the current President has pleaded with Congress to do. It should be noted that this bipartisan desire echoes testimony by the leaders of the US Chamber of Commerce and Labor Unions who beseeched Congress to invest more in our infrastructure, and is reinforced by former Director of Transportation Ray LaHood and former PA Governor Ed Rendell.

These investments pay huge dividends beyond the repair, upgrade or rebuilding of our deteriorated assets of roads, highway bridges, railway bridges and lines, power grids, airports, cabling, etc. These investments create jobs. This is a key reason for Labor Union leaders backing the investment.

This is how we used to invest in our country, with government investment partnering with private investment to do things private investors could not do alone or where the ROI was insufficient for one entity. This history is well captured in a book by Thomas Friedman and Michael Mandelbaum called “That Used to be Us: How America fell behind in the World it Created and How it can come back.” A new book by Jacob Hacker and Paul Pierson called “American Amnesia: How the War on Government led us to forget what made America Prosper” echoes this theme. We have forgotten what made us great.

Yet, we should not lose sight of the reluctance of Congress to part with the money because of our debt. Former Speaker of the House John Boehner greased the skids by getting some Highway Trust funding before he retired at the end of October 2015, but that is not near enough. An economist whose name escapes me said in an interview, borrowing to invest in an asset is different from borrowing to pay for operations and with interest rates so low, we are letting the ideal time pass to do this.

We should be concerned with our debt, but like corporations, while cutting in some areas are needed, we need to invest in our deteriorated assets. This is an area where some obvious funding could be created and aligned through an increase to our comparatively low gas tax. By increasing the federal gas tax by 35 cents per gallon, per the nonpartisan The Concord Coalition, it would raise $469 billion in revenue over ten years. Plus, it would provide further incentive to purchase better miles per gallon vehicles, which will help the environment.

Investing in our infrastructure is needed and we should begin discussions early in the term of our next President. It is long overdue and will get even more people back to work, especially in areas where underemployment is higher.

America is one big pothole – stupid is as stupid does

In January, 2014, I wrote the blog “America is one big pothole” after seeing former Pennsylvania Governor Ed Rendell and former Secretary of Transportation Ray LaHood, on PBS Newshour. They have joined together for a bipartisan effort to promote much needed investment in our crumbling infrastructure – roads, bridges, railways, ports, etc. and have been in front of Congress to discuss these needs. Fifteen months later, not much has been done about the growing problems, and at the end of this month, our stop-gap funding of the Highway Trust Fund will expire one more time.

The Amtrak accident has caused people to recognize the need, but to be honest politicians do not need anymore wake-up calls. They are fully informed of the problems, but choose not to do anything about it. Their lack of stewardship is not a surprise, but in this case, people have died and will die from their failure to act. The interesting sidebar to this is any investment in infrastructure will create jobs and, as you may recall, that was supposed to be the number one mission of this and previous Congresses. These jobs will dwarf the jobs that could be created with a Keystone Pipeline, for example, and certainly deserve more attention than many of the items discussed in the chamber of Congress.

As reported on a repeat episode on “60 Minutes” last night, this is one issue that the leaders of the US Chamber of Commerce and AFL-CIO labor union agree on. Both were in front of Congress last fall to plead with them to invest in our crumbling infrastructure. Yet, the leaders of these Congressional Committees refused to be interviewed and will not act. And, fifteen months after the following post and six months following these pleas by the US Chamber and AFL-CIO leaders, not much has happened.

The Speaker of the House has reacted with criticism over linking the Amtrak train derailment with a lack infrastructure investing. He even stated the question as “stupid.” I recognize, as do many, that this accident is likely due to excessive speed. But, one of the investments would have added a breaking system that may have kicked in. One thing is for certain, a question about failing to invest in our infrastructure is not “stupid.” What is “stupid” is failing to act when the information to do so is so compelling and business and labor are pleading for action.

Just a quick example from the “60 Minutes” episode re-aired last night. A key railway bridge has 500 trains per day crossing it, the most heavily used railway bridge in the western hemisphere. This bridge is on the most traveled rail line in the country from Boston to New York to Philadelphia. If this bridge goes, it will not be an accident. It will be an accident waiting to happen that could be prevented.

There are other arguments noted in the attached post. Please join with me and write your Congressional representatives and ask them to act. In fact, we should tell them to act as their lack of stewardship is beyond poor. Using the Speaker’s word, their failure is “stupid” and we will be the ones who pay for their stupidity.

https://musingsofanoldfart.wordpress.com/2014/01/10/america-is-one-big-pothole/

Stemming the decline in American Exceptionalism

In 1961, the New York Yankees won the World Series defeating the Cincinnati Reds going away, winning four out of five games. This team was voted one of baseball’s all time best teams, with six players hitting twenty or more home runs, led by Roger Maris and Mickey Mantle. What many did not realize at that time, is this huge success was the beginning of the end of a long-lasting Yankee dynasty. Yes, they made it back to three more World Series, even winning one, but that was the apex of the dynasty and its hero, Mickey Mantle and by 1965, they would be out of the limelight until the late 1970s.

I use this example as it is a metaphor for the United States that has touted its exceptionalism. Mind you, we have one of the greatest governmental constructs of any country, but we have let others catch up and pass us, by investing less in our country than others. We have also let our country drift further into a land of haves and have-nots, where not everyone has full access to the same opportunities, what Teddy Roosevelt called a “square deal.” However, it is not too late to stem the tide of decline. We have rallied before and can rally again. But, we need to recognize the world has changed and we will be only one of several great economic engines and world influencers.

Not to belabor the decline too much, but to highlight where we have lost our way, note the following:

– Our educational rankings per the Organization of Economic Cooperation and Development show we have declined in rankings in math, science and reading where we can barely hear the music the band is playing. On this subject, it should be noted that India sent a rocket to orbit Mars on its first try and did it cheaper than we could.

– Our upward mobility rankings continue to decline where we are no longer in the top ten. Some measures have us even further down the list. It is increasingly more important in the US where and to whom you were born than your own relative merit to achieve success. It should be noted that Canada now has a higher median level of wealth than in the US and our bottom 90% have stagnated in earnings, while our top 10% have done quite well per a recent survey.

– Our governing process has been thwarted by special interest groups, funders and lobbyists, to the extent deadlock, gridlock, ineffectiveness and inaction are words used more often than others to describe our leaders in Congress. Plus, bizarre and hypocritical decisions are made by many and few notice. Our own Department of Defense has noted Congress as a security risk to our country, as they are not governing and prefer to grandstand.

– Our focus has been on entertainment and sound byte issues. Fewer people care to investigate and pay attention to what really is going on with some biting hook, line and sinker the propagandized version or a superficial version of the news. If it is not exciting, Americans tend to lose interest. They do not recognize when smoke is being blown at them or question rhetoric.

– Our infrastructure is declining and we need to invest in roads, bridges, ports, technology, education, and renewable energy. The fact that one major political party refuses to admit publicly climate change is man-influenced is beyond lunacy and has harmed America and our planet. This is prima facie evidence of the power of funders, in this case the fossil fuel industry which favors the continuation of non-renewable energy where their greatest profits lie. Per “The Global Warming Reader” edited by Bill McKibben, the industry sold through an advanced PR campaign the story that “global warming is a hoax” and many bought this story and some still do.

So, how do we fix this? First, we must invest in our country. We built this country with leveraged public and private investment and other countries have followed our model. Yet, we have lost sight of this and we have fallen behind. There are several books on this subject, but the best one is “That Used to Be Us: How America Fell Behind in the World it Invented and How it Can Come Back” by Thomas Friedman (who wrote “The World is Flat” and Michael Mandelbaum.

We must provide equal opportunity for everyone and not favor those with the most money. As a 55-year-old former Republican, what I have witnessed in my business dealings and observations, is people say they want free market capitalism. What they tend to want is capitalism that favors them. Our country needs some governance on capitalism, which is why Teddy went after the Robber Barons who ran the country. Everything was tilted in their favor and they used everyone else as their pawns. We must avoid collusion, price-fixing, interlocking boards, insider trading, back dated stock options, unfair labor practices, aggressive marketing and fraud, etc. I also don’t like that long time employees must pay for the sins and bad decisions of their leaders through lay-offs while the leaders continue on or go out with a golden parachute.

We must also recognize that we have a poverty problem in this country. Most of the vanishing middle class did not go up in ranks, but fell down the ladder. We must increase opportunity through education and training. We must provide a living wage to people by increasing the minimum wage and tagging it to periodic or indexed increases. We need to embrace health care access for all, so we should refine Obamacare which is showing success in spite of its complexity. It should not be lost on others that the countries with better social mobility rankings tend to have some form of national healthcare. While Obamacare is not national healthcare, it does improve access and is dampening cost increases.

Finally, we citizens need to pay more attention and tell politicians we are watching. We need to share our concerns and vote for people who are willing to collaborate. The rigidity of a candidate in his or her belief system is in direct proportion to his or her inability to govern. We don’t need leaders shouting at the wind; we need leaders willing to listen and look at real data from reputable sources. We need leaders who are less enamored with their own voice and do not believe their own BS simply because a supposed news source regurgitated that rhetoric as fact, so it must be right.  We also need our citizens to be better informed. I encourage you to read and watch news sources that are more even-handed and in-depth, where actual subject matter experts speak civilly with informed newscasters.

It is not too late to stem the tide of our decline. But, we do need to wake up and change our behavior. The Yankees did learn from their demise and eventually rebuilt their team. They won two World Series in 1977 and 1978 and then created a new dynasty that rivaled the older ones in the late 1990s and early 2000s. Derek Jeter is retiring this year and serves as a great example to learn from. He carried himself with professionalism, came to work every day on time and ready to play and cared more about winning than individual success. Not a bad act to follow.

A high price for profit making in the legal drug business

I don’t think it will surprise many people that our pharmaceutical companies are out to make a sustainable profit. You can glean this quite easily from the many commercials on TV and the internet around creating a new disease, so that a drug can be prescribed to remedy it. The key catch for them is they want you to take this drug for the rest of your life. As a business person, I understand all of this, but there is a concern beyond this modus operandi, which is highlighted in the attached article. Antibiotics drug development is now being overlooked as it is not profitable. Why? The antibiotic cures what ails you in a reasonable short order.

http://www.streetinsider.com/Press+Releases/Antibiotics+are+a+Financial+Disaster%3B+CBCD+Proposes+a+Governmental+Agency+for+the+Development+of+New+Antibiotic+and+Antiviral+Drugs/8912338.html

From this article, a quote from an earlier study done in 2007 is referenced:

“Antibiotics have a lower relative rate of return on investment than do other drugs. Antibiotics are short course therapies that cure their target disease, and, therefore, are typically taken for no more than 2 weeks. In contrast, chronic diseases are treated with non-curative therapies that suppress symptoms and are required to be taken for the life of the patient. Ironically, antibiotics are victims of their own success; they are less desirable to drug companies and venture capitalists because they are more successful than other drugs.” This is according to a study published in the journal, Clinical Infectious Diseases which was reported on the news recently

The high price we pay, though, is far greater than the recurring costs of drugs we take to placate our real and exaggerated woes. The high price is the bad bacteria that can infest our bodies finds a way to become immune to the current arsenal of antibiotics. Remembering Jeff Goldblum’s character from the movie “Jurassic Park,” he said “nature finds a way.”  So, while we have always been vigilant about developing new strains of antibiotics, we must continue the fight or nature will find a way around our efforts. Yet, that is now challenged because there is more money to be made investing in drugs that customers need to take the rest of their lives.

I cannot think of a better example of a reason why we must have government investing with private industry for a common purpose. US history has been filled with successes of joint government/ private investment. In Thomas Friedman and Michael Mandelbaum’s book “That Used to be Us: How America fell behind in the World it Created and how it can come back,” they note the role government investment has played over time in our success leveraging private and venture capital dollars or where a business or industry could alone not support the infrastructure start-up costs. This lesson has been borrowed by others and yet we have some who are challenging this paradigm here. Those folks need to read Friedman and Mandelbaum’s book regarding how we got here.

For those who say let the markets be unfettered, the drug companies would continue down the path of investing in a greater ROI making drugs to sell recurringly. They make more money selling the various colored pills to a drug-friendly customer base. Yet, we have to co-invest in antibiotic drugs for the greater good. Some might argue, an enterprising company could develop and sell the antibiotics, yet the cost to the public for each dosage would be very high out of necessity. Plus, the process has to continue, as every time a new antibiotic is created, nature fights back. So, the company’s ROI would not stand up by itself for shareholders and needs incentive from a central source.

So, the idea championed in the attached article draws from our history and suggests government investment to make sure we have antibiotics that will keep us alive. This is one area where we do not want to go back in time, as preventable infections would no longer be preventable and many would die. This issue is very real and we need to heed the calls to action.

Job Creation is Still Key

I must confess I am not surprised, but am disappointed in the failure of Congress to address the issue of job creation after spending so much time talking about it. To the President’s credit he has posed ideas to move things forward, but has not said this is mission one and we must do this. Our Congress can find ways to discuss every thing else under the sun, with the exception of what they need to discuss. The right seems so infatuated with not increasing the deficit, that they fail to consider needed investments in areas which could fuel growth. What does fuel growth?

According to Thomas Friedman and Michael Mandelbaum’s “That Used to Be Us: How American Fell Behind in the World it Invented and How It can Come Back” we have strayed from our model of public/ private partnership of investing in our infrastructure, innovative ideas and education. For some reason, the involvement of government investing in moving big ideas forward seems to have gotten lost. Our government has always invested in big infrastructure items like highways under Eisenhower, dams and highways under FDR and water resources under Teddy Roosevelt. But, it also has invested in tandem with venture capital and other investors on ideas that could be game changers. For a copy of the book, please link to: http://www.thomaslfriedman.com/bookshelf/that-used-to-be-us.

This thesis of investing in innovation is also echoed in David Smick’s book “The World is Curved” which plays off Friedman’s earlier best seller “The World is Flat.” What is interesting about Smick’s perspective is he was an economic advisor to two Presidents – Ronald Reagan and Bill Clinton, as well as Jack Kemp who ran unsuccessfully for President. He notes that America must invest in innovation to remain successful, as he notes innovation is portable. If the idea is created, protected and funded elsewhere, that is where the initial jobs will be created. For a copy of the book, please use the following link: http://theworldiscurved.com/. This is a key reason the Immigration Bill included keeping talent here in America as we need to keep our innovators.

One of the interesting observations that Smick makes in his book is how similar Reagan and Clinton were in a key area. They both opened up markets for US trade. When you look at the jobs created during various White Houses (note this gives too much credit to the President, but is an interesting exercise nonetheless), Bill Clinton’s tenure had the most non-farm jobs created than any other president – over 22.7 million, an average of 11.4 million jobs per four-year term (per the Bureau of Labor Statistics). The fourth best president result, per added non-farm jobs is Reagan at 16.1 million or 8.1 million jobs per term. What I found surprising is the second most jobs created per term was under JImmy Carter at 10.3 million. Lyndon Johnson came in third with 9.8 million jobs in his second term, building off a good combined result with JFK in his short first term ending JFK’s term after his assassination.

Our Republican friends will not appreciate this next statement, but if you look at the Bureau of Labor statistics and earlier data, the comparison of non-farm jobs created under Democratic White House tenures dwarfs the same result under GOP White House tenures. Again this gives too much credit (or blame) to the President, but since 1921, the twelve GOP terms have created 35.3 million which pales in comparison to the eleven Democratic terms which had 74.5 million jobs added. The average per term shows 6.8 million/ term for the Dems versus 2.9 million/ term for Reps. It means that the Democrats needed a better press agent. But, I do believe it goes deeper than that.

I believe Keynesian economics seems to have been embraced more by Democrats than the GOP, who are much more interested in trickle down economics. The Keynesian view follows some of what Smick and Friedman/ Mandelbaum are saying. Intentional spending creates jobs. If we Invest in infrastructure, jobs will be created that will fuel more spending. So, as we look at the deficits, they are important, but we need to be mindful of three things. First, we need judicious cutting of some expenditures. Second, we need increased spending in infrastructure, innovation and education investments. It is OK to borrow to build an asset, less so to pay for operations. You may have debt, but you do have an asset. Let’s build things – this latest bridge collapse was not a total surprise. Third, we do need more revenue. The Bush tax cuts which we continue today (except at the upper end which has helped bring down the deficit) took us from a surplus position to a deficit position and caused Bush to fire his Secretary of the Treasury Paul O’Neill when he openly was critical of this move.

It should be noted these three ideas are part of Simpson-Bowles plan and are behind some of the President’s budget recommendations. And, I do want to say to those folks that called his stimulus a failure did not read the conclusions of five reputable economic firms who said the stimulus actually worked, it was just not enough.

Our economy continues on its journey upward. The capital market are at a new peak doubling what they were when Obama started (a lot of GOPers should thank Obama and Bernanke), the housing market is recovering and jobs have been added for over three years. Yet, we need to build things. And, we have stuff like these bridges that need to be built. Congress please stop focusing on nonsense and focus on this issue. You said you would.